Ball State University FIN100 Final Exam

Using the income multiplier estimation method, how much life insurance would you need if your current income is $47,000? Income multiplier method multiplies current income by 10

$47,000 x 10 = $470,000

FHA total payments to-income ratio

(1190 + 85 + 140 + 240) = 1,655/3500 = .4728 = 47.28% all monthly payments = total/income = % over 43%

Split limit PAP: 25/50/10

1st: maximum amount the insurance will pay in medical expenses for someone else if accident is caused by you 2nd: maximum amount the insurance will pay for all medical expenses who was involved in an accident 3rd: maximum amount the insurance will pay to repair someone else's property if damaged

Stock formula

Gross Sales - Expenses = Net Profit

The borrower receives the full amount of money upfront and then makes regular payments to repay the loan and interest Example: auto loan, student loan, mortgage

Installment loan

Stock Value

Dividend x (1 + Dividend Growth Rate) / (Your Required Rate of Return - Dividend Growth Rate)

divide monetary assets by monthly living expenses Good results: between 3 and 6

Emergency fund Ratio

Aman is attending school and had a financial emergency. He contacted his school's financial aid office and asked about a subsidized student loan. Aman's school facilitates these loans and determined that Aman qualifies for a $400 loan. Aman is able to repay the loan over the next 12 months while he is still in school. How much interest will Aman pay on this loan? a. $0 because interest on subsidized loans does not accrue until Aman stops attending school. b. $20.00 because the interest rate is 5%. c. $10.00 because Aman has been making payments on the loan. d. None of the choices are correct.

a. $0 because interest on subsidized loans does not accrue until Aman stops attending school.

With a very stable profession, if your monthly expenses totaled $3780, approximately how much should you have in an emergency fund? a. $11340 b. $7560. c. $17110. d. $3780.

a. $11340

Using the income multiplier estimation method, how much life insurance would you need if your current income is $45400? a. $454000. b. $249700. c. $499400. d. $908000.

a. $454000

How does risk affect insurance premiums? a. As risk increases premiums increase. b. Risk doesn't affect premiums. c. As risk increases premiums decrease. d. As risk decreases premiums increase.

a. As risk increases premiums increase.

Why do some dislike the probate process? a. Because probate is public and difficult to maintain privacy for the deceased person and his or her heirs. b. The court caps the amount a personal representative can earn to $25 per day. c. The probate process makes it difficult to execute a will efficiently. d. All of these answer choices are correct.

a. Because probate is public and difficult to maintain privacy for the deceased person and his or her heirs.

Which of the following statements best describes the concept of tax-deferred growth? a. Earnings within an account are not taxed as income until the earnings are withdrawn from the account, which could be many years after the earnings were first credited to the account. b. Earnings are never taxed. c. Earnings do not accumulate in the account until after taxes have been paid. d. Taxpayers can take deductions for the taxes that they pay on the earnings in the account.

a. Earnings within an account are not taxed as income until the earnings are withdrawn from the account, which could be many years after the earnings were first credited to the account.

Federal student loans offer which of the following advantages? I.No credit check.II.Lower interest rate.III.Flexible loan repayment. a. I, II, and III. b. I only. c. II and III only. d. I and III only.

a. I, II, and III.

Melba has been shopping for a new car. She has already visited four dealerships where she test-drove six cars. When she went to the fifth dealership, the salesperson asked where else she had been that day. Melba lied and said she was just now starting to look at cars. How did the salesperson know that Melba was lying? a. Melba's credit report showed that other dealers had accessed her credit score before she test drove their cars. b. The salesperson could tell by looking at the condition of her current car. c. The salesperson has a unique mind-reading ability. d. Car dealerships call each other on a daily basis indicating who has been shopping that day.

a. Melba's credit report showed that other dealers had accessed her credit score before she test drove their cars.

Who of the following may establish a Roth IRA? a. Nelda, who is still in college and has a part-time job as a sales clerk. b. Mary, who is retired and is taking distributions from her traditional IRA. c. Shelby, who had $3,000 of interest income last year. d. Lamar, who is enrolled in college and has $9,000 in scholarships.

a. Nelda, who is still in college and has a part-time job as a sales clerk.

Use the FHA housing payments-to-income ratio to determine whether Nadine can qualify to purchase a home. Assume that the mortgage payment is $1,200, taxes are $300, and insurance is $150 monthly. Also assume that Nadine earns $4,000 per month. Can she afford the home? a. No, because the ratio is greater than the benchmark. b. Yes, because the ratio is greater than the benchmark. c. No, because the ratio is less than the benchmark. d. Yes, because the ratio is less than the benchmark.

a. No, because the ratio is greater than the benchmark.

Xavier recently graduated from college with a degree in mechanical engineering. He currently makes $87,000 per year. He has aspirations to move up with his firm and eventually earn much more. If his plan works out, he will be paying more taxes sometime in the future. Which of the following retirement plan options should Xavier choose today? a. Roth IRA. b. Traditional IRA. c. Treasury Direct IRA. d. Rollover IRA.

a. Roth IRA.

For someone with a limited budget, which type of policy makes most sense? a. Term life policy. b. Universal life policy. c. Whole life policy. d. Variable Universal life policy.

a. Term life policy.

Which of the following statements regarding term-life insurance is INCORRECT? a. Term-life insurance is intended to provide lifetime insurance protection. b. Level term is purchased for periods ranging from 5 to 30 or more years. c. Annual renewable term needs to be purchased yearly. d. Term-life insurance is much less expensive than cash-value life insurance.

a. Term-life insurance is intended to provide lifetime insurance protection.

What does replacement coverage ensure? a. The full replacement cost of items will be paid. b. The cash value of items will be paid. c. Both the full replacement cost of items and the cash value of items will be paid. d. Neither the full replacement cost of items nor the cash value of items will be paid.

a. The full replacement cost of items will be paid.

Mark, age 56, is a single man and died intestate. In addition to household and personal items, he had $450,000 in 401(k) retirement assets. Who will receive the 401(k) plan? a. Whomever Mark listed as the account beneficiary. b. Whomever the state where he died indicates through probate statute. c. His brothers and sisters, in equal shares, or his parents. d. Whomever Mark noted in his will.

a. Whomever Mark listed as the account beneficiary.

Roth IRA

•Make a contribution •No income tax deduction •Postpone tax advantage to the future •Money grows tax-defferred •Pay no taxes on money taken out of the account in the future

Traditional IRA

•Make a contribution •Receive an income tax deduction •Pay less tax today •Money grows tax-deferred •Pay taxes on money taken out of the account in the future •59 ½ take out money (for both)

Lamar is faced with a high frequency high severity risk. According to the risk matrix, Lamar should: a. avoid the risk. b. transfer the risk. c. accept the risk. d. manage the risk.

a. avoid the risk.

The amount you must pay before your insurance company makes a payment on a claim is called the: a. deductible. b. premium. c. loss waiver. d. collision waiver.

a. deductible.

Volatility refers to: a. how wildly returns fluctuate over time. b. the degree to which purchasing power is lost due to inflation. c. the maximum expected loss someone can expect over time. d. how liquid an investment becomes over time.

a. how wildly returns fluctuate over time.

An advantage of a line of credit from a bank over an installment loan is that: a. if the borrowed funds are repaid, then the credit line is still available for future use without having to apply for another loan. b. it is generally an unsecured loan. c. the interest rate is competitive with other low-cost forms of credit. d. All of the choices are correct.

a. if the borrowed funds are repaid, then the credit line is still available for future use without having to apply for another loan.

A(n) ____________ in the loan interest rate and a(n) _____________ in the loan duration will increase the monthly auto loan payment. a. increase; decrease b. decrease; increase c. decrease; decrease d. increase; increase

a. increase; decrease

Bart has been a successful financial advisor for more than 10 years. During that time, he has generated returns that have never been less than 5% annually. He does not advertise but that has not stopped investors from opening new accounts with his firm. It turns out that Bart has been taking the deposits of new investors, keeping a portion for himself, and sending the rest to earlier investors. Bart is running a(n): a. ponzi scheme. b. telemarketing scheme. c. pyramid scheme. d. identity theft fraud.

a. ponzi scheme.

With an installment loan, the borrower: a. receives the full amount of money upfront and then makes regular payments to repay the loan and interest. b. is told how much she or he can potentially borrow, and then using a debit card or checkbook, the borrower can access the money and repay the loan and interest through flexible repayments. c. can receive a short-term loan from a bank or credit union by pledging an upcoming automatic account deposit, such as apaycheck, as repayment of the loan and fees. d. can borrow up to a maximum of $100,000.

a. receives the full amount of money upfront and then makes regular payments to repay the loan and interest.

Human capital refers to your ability to: a. work and/or learn. b. learn. c. work. d. form connections with other people.

a. work and/or learn.

How much can Jorge afford to spend on a monthly car payment if his excess monthly cash flow is $400, and he expects the following monthly expenses: $42 gas, $94 insurance, and $28 for maintenance and repairs? a. $84. b. $236. c. $400. d. There is not enough information available to answer this question.

b. $236.

Matthew is wondering what maximum benefit limit he should choose if he expects the cost of long-term care coverage to be $295 per day and he anticipates needing long-term care services for 3 years (assuming a 360-day billing cycle). a. $106200. b. $318600. c. $531000. d. $212400.

b. $318600

A company you are considering investing in has a dividend of $0.40 per share. If you have a required return of 12% and the dividend is expected to grow at 3% per year, the discounted dividend valuation model would value the stock at: a. $5.50 b. $4.58 c. $5.89 d.$4.98

b. $4.58 ((0.40 * (1 + 0.03))/(0.12 - 0.03) = 4.577778

Linda is working with a commissioned-based financial planner. The financial planner is recommending that Linda purchase shares in a mutual fund the charges a 4percent commission. If Linda invests $10000 how much will the advisor be paid? a. $40. b. $400. c. $360. d. $4000.

b. $400.

Emily owns a house with a fair market value of $188000. When she purchased the home she paid $214000, but that was several years ago. She currently owes $194000. How much equity has Emily built since she first purchased the house? a. $98000 b. -$6000 c. $26000 d. $-98000

b. -$6000

-John has cash in a savings account totaling $7,500, and his monthly expenses are $2,500. What is his emergency fund ratio?

b. 3

What is the APR for a loan that charges 3.2% every 30-day payment period? a. 0.91% APR. b. 40.15% APR. c. 1.00% APR. d. 1.12% APR.

b. 40.15% APR

What us the APR for a loan that charges 5.1% every 30-day payment period? a. 61.2% b. 62.05% c. 51.02% d. 5.1%

b. 62.05%

If you, as an investor, wanted to guarantee purchasing a stock at a specific price or better, which type of order would you use? a. A market order. b. A limit order. c. A buy stop order. d. A sell limit order.

b. A limit order.

Ramos is an aggressive investor and likes to win at everything. He knows that it is impossible to win or beat the averages all of the time, but he wants to try! Given his attitude, Ramos should select what type of investment if his number one goal is to beat the market? a. Index mutual fund. b. Actively managed mutual fund. c. Bond index ETF. d. Index-based ETF.

b. Actively managed mutual fund.

Somerset, age 43, is self-employed and started saving for retirement 8 years ago using a Roth IRA. He liked the idea of someday taking distributions on a tax-free basis. Unfortunately, he has recently run into some business troubles and needs to raise cash quickly. He would like to take a distribution from his Roth IRA immediately. Which of the following statements is true for Somerset? a. Because he is younger than age 59½, any distribution will be subject to a 10% early withdrawal penalty. b. As long as he only takes out his contributions—not the account earnings—the distribution will be tax- and penalty-free. c. The distribution is not allowed, unless he is purchasing a new home or paying for a child's education, before age 59½. d. Any distribution will be deemed a return of earnings and principal; this means that his contributions will be subject to tax, while the earnings will be subject to a 10% penalty.

b. As long as he only takes out his contributions—not the account earnings—the distribution will be tax- and penalty-free.

Why do consumer advocates advise against using alternative financial services? a. Because of the poor customer service provided by alternative financial service providers. b. Because of the high-cost associated with the loans and other services. c. Because the amount that can be borrowed is too little to get through an emergency. d. Because they have a conflict of interest and invest in bank stock.

b. Because of the high-cost associated with the loans and other services.

As a novice investor, Laura is concerned about fees. She has heard stories of investors who have lost thousands of dollars in fees over time. She wants to invest in investments that generally have the lowest fees. Given her desire, Laura should focus on purchasing: a. Exchange-traded funds. b. Both index mutual funds and exchange-traded funds. c. Actively managed mutual funds. d. Index mutual funds.

b. Both index mutual funds and exchange-traded funds.

Given a high tolerance for risk and a desire to invest internationally, investment in which type of countries could represent good investment opportunities? a. Countries with negative GDP growth. b. Countries with strong GDP growth, oversight, and legal structure. c. Countries with strong oversight and legal structure. d. Countries with strong GDP growth.

b. Countries with strong GDP growth, oversight, and legal structure.

When you own stock in a company, you are: a. Entitled to earn interest on your investment. b. Entitled to a share of the firm's profits. c. Liable for any losses the firm may incur. d. All of these answer choices are correct.

b. Entitled to a share of the firm's profits.

Which of the following requires financial professionals to act in the best interest of the client at all times and to fully disclose any and all conflicts of interests? a. Suitability standard. b. Fiduciary standard. c. Commission. d. Conflict of interest.

b. Fiduciary standard.

Which of the following is true regarding brokerage accounts: I.Full-service brokerage firms provide guidance to investors. II.Brokerage accounts are prefunded arrangements between an investor and a broker-dealer. III.Investors who want to own stocks and bonds do so, almost exclusively, via brokerage accounts. IV.A self-directed brokerage account is appropriate for an investor who does not want or doesn't need investment guidance. a. I, II and III only. b. I, II, III and IV. c. I, and II only. d. I, II and IV only.

b. I, II, III and IV.

Which of the following refers to someone who died without a will? a. Testate. b. Intestate. c. Title. d. Contract.

b. Intestate.

Which of the following refers to owning property equally with another person and each of you has the rights of survivorship? a. Tenancy by the entirety. b. Joint tenancy with right of survivorship. c. Fee simple. d. Community property.

b. Joint tenancy with right of survivorship.

A government-supported health insurance program that is designed to provide coverage to those currently living in poverty is called: a. Medicare. b. Medicaid. c. the Affordable Care Act. d. ObamaCare.

b. Medicaid.

Rimi currently earns $3500 per month. She has the following monthly debt payment expenses: $85 for credit cards, $140 for student loans, and a $240 car payment. She is looking to buy a house. The monthly mortgage, including principal, insurance, taxes, and insurance is $1190. Does Rimi pass the FHA total fixed payments to income ratio requirement? a. No, because her ratio is greater than 31%. b. No, because her ratio is greater than 43%. c. Yes, because her ratio is less than 43%. d. Yes, because her ratio is less than 31%.

b. No, because her ratio is greater than 43%.

Which of the following refers to the court-supervised process of distributing assets and paying debts after someone's death? a. Title. b. Probate. c. Payable upon death. d. Transfer on death.

b. Probate.

In what ways are 401(k) plans, 403(b) plans, and 457 plans similar? a. They are all considered pension plans. b. They each provide employees tax-advantaged opportunities to save for retirement. c. They are identical except for the type of employer who may sponsor them. d. They are each primarily funded by employer contributions.

b. They each provide employees tax-advantaged opportunities to save for retirement.

Aside from not taking out student loans, the best way to minimize the amount of interest paid on student loans is to: a. limit borrowing to direct subsidized loans. b. both repay them as quickly as possible and limit borrowing to direct subsidized loans. c. repay them as quickly as possible. d. consolidate loans.

b. both repay them as quickly as possible and limit borrowing to direct subsidized loans.

Someone who guarantees that a renter will either pay the rent on time or make the payment for the renter is called a: a. tenant. b. co-signer. c. roommate. d. reletter.

b. co-signer.

A person who establishes a trust is known as the_____________, whereas the person who is entitled to the income and other distributions from the trust is known as the _____________. a. trustee; grantor b. grantor; trustee c. grantor; beneficiary d.trustee; beneficiary

b. grantor; trustee

The 50 in a 50/100/25 split limit policy refers to the maximum amount the policy will pay in: a. medical coverage for those in your car. b. medical coverage for one person in the other car. c. medical coverage for everyone in the other car. d. property damage.

b. medical coverage for one person in the other car.

Insurance that protects the lender in the event that the borrower does not repay the mortgage is called: a. homeowners' insurance. b. mortgage insurance. c. good faith insurance. d. settlement insurance.

b. mortgage insurance.

All of the following statements regarding federal student loans are true, except: a. federal student loans have loan forgiveness programs for those working in public service jobs, and those who have made on-time payments for 10 years. b. private student loans generally have lower interest rates compared to federal student loans. c. federal student loans offer more flexible repayment options compared to private student loans. d. there is no credit report/score check when applying for federal student loans.

b. private student loans generally have lower interest rates compared to federal student loans.

Domingo has a health insurance policy with the following provisions: $500 deductible, $50 copay, and 80/20 coinsurance provision. If Domingo has an accident that costs $3,000 in medical expenses, how much will he have to pay out of pocket? a. $490 b. $550 c. $1,040 d.$2,450

c. $1,040 $3,000 - $500 -$50= $2,450 20%*2,450 = $490 Total cost= $490 + $500+ $50 = $1,040

Haley just graduated from college. She accepted a position with a firm at an annual salary of $54000. Using HUD guidelines, what is the maximum Haley should pay for rent on a monthly basis? a. $5400. b. $16200. c. $1350. d. $1800.

c. $1350.

How much does the average Ball State student borrow for college? a. $15,000 b. $20,000 c. $28,000 d. $35,000 (Chapter 6)

c. $28,000

Ann is thinking about paying points to a lender to obtain a lower interest rate on her mortgage. The loan is in the amount of $340000. If she pays 2 points, she can reduce the interest rate from 5.10% to 4.30%. How much in loan points must Ann pay to get this deal? a. $1700 b. $850. c. $6800. d. $3400.

c. $6800

Your next-door neighbor thinks that she has discovered the next food craze: a blend of Chinese and Mexican cuisine she is calling Carla Vista. She already has one location that is busy all day. She currently has gross sales of $14.35 million. Her expenses, which include ingredients, rent, and personnel, run $7.00 million. What is her net profit or loss? a. $14.35 million loss. b. $6.50 million profit. c. $7.35 million profit. d. $7.35 million loss.

c. $7.35 million profit.

Susan borrowed money from her credit union using her car as collateral. The monthly interest rate on the loan is 0.2%. There were no other fees associated with the loan. What is the APR of her car loan? Assume 12 equal months. a. 0.2% APR b. 2.0% APR c. 2.4% APR d. 24.0% APR

c. 2.4% APR

Joe has cash in a savings account totaling $7,500, and his monthly expenses are $2,500. What is his emergency fund ratio? a. 0.25 b. 2 c. 3 d. 5

c. 3

What type of coverage pays for things like broken glass and vandalism to your car? a. Collision coverage. b. Uninsured motorist coverage. c. Comprehensive coverage. d. Liability coverage.

c. Comprehensive coverage.

Which of the following forms of federal financial aid must be repaid once the student is no longer attending school? a. Work-study awards. b. Grants. c. Direct subsidized loans. d. None of the choices are correct.

c. Direct subsidized loans.

A Health Savings Account (HSA) is a tax-advantaged savings account that can be set up to pay out-of-pocket healthcare expenses. What else is true of HSAs? a. Money in HSAs must be used for healthcare expenses. b. Distributions for out-of-pocket healthcare expenses are subject to income taxes. c. HSAs are great tools for healthcare expenses and retirement goals. d. They are exactly like IRAs.

c. HSAs are great tools for healthcare expenses and retirement goals.

Roger is currently age 68. He is creating a retirement income plan. As such, he needs to estimate his future required distributions from his retirement plans. Help Roger by telling him when he must begin taking distributions from his Roth IRA. a. He can wait until he begins taking Social Security benefits, which is currently age 70. b. He should already be taking distributions because he is older than age 59½. c. He never needs to take a distribution. d. He must begin minimum distributions when he turns age 70½.

c. He never needs to take a distribution.

Which of the following is true regarding 401(k) plans? I.401(k) plans are primarily funded by employees. II.401(k) plans are primarily funded by employers. III.Investments grow tax-deferred in 401(k) plans. IV.Employers may provide matching contributions to 401(k) plans. a. I and II only. b. I, II, and III only. c. I, III, and IV only. d. I, II, and IV only.

c. I, III, and IV only.

To have equity in a company means that: I.You have lent money to the firm. II.You receive dividends when distributed by the firm. III.You have an ownership interest in the firm. a. I only. b. III only. c. II and III only. d. I and II only.

c. II and III only.

Rank the following types of loans from least expensive to most expensive. I.Payday loan. II.Cash advance on a credit card. III.Pawnshop loan. IV.Subsidized student loan. a. I, II, III, IV b. IV, I, II, III c. IV, II, III, I d. II, I, III, IV

c. IV, II, III, I

Maribelle is looking to purchase a car. She is considering all of her options. She is a college student working 30 hours per week. She has been riding the bus to work and school, but it requires 2 hours per day of transit time to get to work (about 25 miles round-trip). If she had her own car, she could cut this time down to 40 minutes per day. Based on this information, which vehicle choice would be the best for Maribelle? a. Full-size pickup truck. b. An electric vehicle. c. Inexpensive compact car. d. Compact luxury car.

c. Inexpensive compact car.

An advantage of investing internationally is: a. The best investments are always overseas. b. Reduced portfolio volatility and higher returns can be achieved by taking no additional risk. c. Low correlation between U.S. stocks and international stock which reduces investment risk. d. Low correlation reduces portfolio returns.

c. Low correlation between U.S. stocks and international stock which reduces investment risk.

Michelle and Jerry are each planning to apply for disability insurance coverage from a private insurance firm. Although Michelle and Jerry are the same age and have the same health profile, Michelle's premium is lower. What explains this phenomenon? a. Women are more likely to be involved in life-ending accidents compared to men. b. Women are less likely to die of natural causes. c. Men are more likely to become disabled. d. Men are less likely to become injured on the job.

c. Men are more likely to become disabled.

Which of the following best describes an index mutual fund? a. Mutual funds managed based on a pre-set ratio of stocks and bonds. b. Mutual funds managed based on a person's anticipated year of retirement. c. Passively managed funds designed to mimic a specific market. d. Mutual funds that attempt to earn rates of return that exceed the return of the market.

c. Passively managed funds designed to mimic a specific market.

Which of the following refers to legal documents that allow a named person, often an agent, to act on your behalf? a. Living will. b. DNR. c. Power of attorney (POA). d. Will.

c. Power of attorney (POA).

Scotty and Kirk own a speedboat together. They are not related but have been friends since childhood. They own equal shares of the boat. When thinking about the future, Kirk would like to pass his share of ownership to his son, Leonard. How must Scotty and Kirk title the boat? a. Fee simple. b. JTWROS. c. Tenancy in common. d. Community property.

c. Tenancy in common.

Under which of the following circumstances may life insurance be unnecessary? a. You have a spouse or children. b. You want to leave a legacy or inheritance to someone else. c. You and your fiancée are getting married in 1 year and both of you work full-time. d. You will have a large tax liability (very wealthy) when you die.

c. You and your fiancée are getting married in 1 year and both of you work full-time.

Which of the following lenders will likely provide the lowest interest rate to qualified borrowers? a. Credit-card company. b. Title loan lender. c. Banks and credit unions. d. Retail/store credit card.

c. banks and credit unions

The ________ receives the policy death benefit when the insured dies, whereas the _______ is the person who makes premium payments. a. policy owner; beneficiary b. beneficiary; insured c. beneficiary; policy owner d. policy owner; policy owner

c. beneficiary; policy owner

Collateral is: a. used with unsecured loans. b. only required if a credit score is not high enough. c. property that can be taken by the lender if a loan is unpaid. d. required for all personal loans.

c. property that can be taken by the lender if a loan is unpaid.

The cost of insurance increases as the: a. frequency of a loss increases. b. severity of a loss increases. c. severity and frequency of a loss increases. d. retention of the loss increases.

c. severity and frequency of a loss increases.

All of the following are true of traditional IRAs, except: a. contributions are made with pretax dollars. b. contributions are deductions for AGI. tc. hey are appropriate accounts to hold emergency funds. d. withdrawals before the account holder reaches age 59½ years old are taxable and may be subject to a penalty.

c. they are appropriate accounts to hold emergency funds.

A legal document that dictates your desire to distribute your property after death is called a: a. gift. b. title. c. will. d. clause.

c. will

According to the Social Security Administration, disability means: a. you are unable to do the work you did before your illness or accident. b. your disability must be expected to last one year or longer. c. you are unable to do the work you did before your illness or accident and it is expected to last one year or longer. d. your disability can be healed with long-term care services.

c. you are unable to do the work you did before your illness or accident and it is expected to last one year or longer.

Jason has a health insurance policy with the following provisions: $525 deductible, $50 copay, and 80/20 coinsurance provision. If Jason has an accident that costs $3115 in medical expenses, how much will he have to pay out of pocket? a. $2540. b. $508. c. $575. d. $1083.

d. $1083.

Your neighbor has monthly expenses totaling $3980. His employer has indicated that the firm is expecting to announce layoffs soon. How much should your neighbor have in an emergency fund if he wants to cover 6 months of living expenses? a. $20000. b. $11940. c. $3980. d. $23880.

d. $23880.

A short-term disability insurance policy is designed to pay benefits for a maximum of ... a. 3 months b. 6 months c. 9 months d. 12months

d. 12months

If you, as an investor, wanted to guarantee purchasing a stock at a specific price or better, which type of order would you use? a. A market order b. A buy stop order c. A sell limit order d. A limit order

d. A limit order

Unlike renters, homeowners are required to pay for what common expenses? a. Replacing appliances. b. Fixing broken windows. c. Painting every few years. d. All of the choices are correct.

d. All of the choices are correct

Some individuals facing financial emergencies will attempt to skip certain payments to make other payments. This strategy is generally not helpful because: a. The individual's credit report and credit score will be adversely affected. b. If income does not increase or expenses do not decrease, then nothing will change in the long run. c. This will likely lead to higher borrowing costs in the future. d. All of the choices are correct.

d. All of the choices are correct.

When searching for a vehicle to purchase, which of the following variables is an important factor in the purchase decision-making process? a. Reliability. b. Safety. c. Cost efficiency. d. All of the choices are correct.

d. All of the choices are correct.

Which of the following reasons might require you to get a guarantor for a lease agreement? a. You have a low credit score. b. You do not have a credit report. c. You have never rented before. d. All of the choices are correct.

d. All of the choices are correct.

The best strategy for dealing with health risks is: a. Transferring all costs to someone else. b. Saving or using an emergency fund for any unforeseen health episode. c. Self-insuring against sickness. d. Avoiding and managing health risks.

d. Avoiding and managing health risks.

Which of the following types of federal student loans accrues interest (i.e., adds the interest to the loan balance) or allows the student to pay the interest while still in school? a. Direct subsidized loan. b. Direct unsubsidized loan. c. Direct PLUS loan. d. Both direct unsubsidized and PLUS loans.

d. Both direct unsubsidized and PLUS loans.

Lyle considers himself a gambler. He likes to do research on individual stocks, market sectors, and the stock market in general. He likes to buy and sell based on breaking news. Lyle primarily invests in individual stocks and industry specific mutual funds (i.e., healthcare mutual funds or manufacturing mutual funds). He rarely buys ETFs. What specific advantage of ETFs over mutual funds is Lyle missing out on? a. Diversified portfolio. b. The ability to buy and sell at any time during the trading day. c. Low expense ratios. d. Both diversified portfolio and the ability to buy and sell at any time curing the trading day.

d. Both diversified portfolio and the ability to buy and sell at any time curing the trading day.

What is the difference between defined benefit plans and defined contribution plans? a. Defined contribution plans are pensions and defined benefit plans are not. b. Defined benefit plans and defined contribution plans are both pension plans. c. Defined contribution plans require employees to save less for retirement, whereas defined benefit plans require employees to save more. d. Defined benefit plans guarantee payments to retirees, whereas defined contribution plans make contributions to retiree accounts without making guarantees. (ch. 10)

d. Defined benefit plans guarantee payments to retirees, whereas defined contribution plans make contributions to retiree accounts without making guarantees.

Which of the following is/are reasons why investors might choose to invest in mutual funds? a. Diversification. b. Professional management. c. To pool capital with other investors. d. Diversification, professional management, and to pool capital with other investors.

d. Diversification, professional management, and to pool capital with other investors.

Which of the following statements is true when you invest in a federally insured bank account? a. Given the federal insurance, you are taking no risk. b. Although there is federal insurance, you are faced with liquidity risk. c. Given the federal insurance, you are taking significant business risk. d. Even though there is federal insurance in place, you still face inflation risk.

d. Even though there is federal insurance in place, you still face inflation risk.

Which of the following investment features is typically associated with ETFs but not mutual funds? a. Funds provide investors with immediate diversification. b. Funds can be purchased that match a market index. c. Funds are often actively managed. d. Funds can be traded throughout the day.

d. Funds can be traded throughout the day.

What makes a car a bad investment? a. As a use asset, car values nearly always decline over time b. The quality of cars made today is so low that there is no value in owning a car c. The value a car adds to a household's ability to increase human capital is too high to warrant the cost of insurance d. It is impossible to justify owning a car if someone has to borrow money for the purchase, which makes cars a bad investment choice (chapter 6)

d. It is impossible to justify owning a car if someone has to borrow money for the purchase, which makes cars a bad investment choice

What are benefits of a custodial IRA? a. It offers tax-deferred growth on investment earnings. b. It allows minors to begin building their long-term savings. c. It gives minors full control of the accumulated funds in the custodial IRA once they reach the age of majority. d. It offers tax-deferred growth on investment earnings, allows minors to build long-term savings, and gives minors control of assets in the IRA once they reach the age of majority.

d. It offers tax-deferred growth on investment earnings, allows minors to build long-term savings, and gives minors control of assets in the IRA once they reach the age of majority.

Which of the following is not a strategy to protect against identity theft? a. Always shred financial statements and receipts that show account-related information. b. Reconcile your monthly account information to make sure there are not any unauthorized transactions. c. Never respond to unsolicited e-mails asking for credit cards, passwords, or other financial or security information. d. Never use credit cards online since nearly all identity theft occurs online.

d. Never use credit cards online since nearly all identity theft occurs online.

Life insurance provides a tax-free lump-sum payoff that can be used to: a. Pay burial costs. b. Pay off final debts. c. Pay final expenses. d. Pay burial costs, final debts, and final expenses.

d. Pay burial costs, final debts, and final expenses.

Which of the following refers to the cost of the insurance? a. Transfer risk. b. Copayment. c. Deductible. d. Premium.

d. Premium.

Money paid in advance to cover the cost of excess damage you might cause while renting is called a(n): a. Reletting fee b. Application deposit c. Security deposit d. Renters' Insurance

d. Renters' Insurance

Which of the following is true if Lisa purchases 80shares of an IPO for $40 per share and sells the shares for $55 each? a. She will have a $15 dividend per share. b. She will have a 38 percent dividend. c. She will have a 15 percent capital gain. d. She will have a $1200 capital gain.

d. She will have a $1200 capital gain.

Which of the following sources of emergency funds will have the least negative impact on your lifetime financial situation if the source is used to meet emergency expenses? a. Borrowing money using a credit card. b. Being unprepared for major car repairs, major medical expenses, and major home repairs. c. Selling investment assets. d. Taking money from your savings account.

d. Taking money from your savings account.

When interest rates increase, which of the following outcomes is most likely? a. The value of investments will increase. b. The rate of return on a bank or credit union savings account will increase. c. Holding cash in an emergency fund is more attractive. d. The rate of return on a bank or credit union savings account will increase, and holding cash in an emergency fund is more attractive.

d. The rate of return on a bank or credit union savings account will increase, and holding cash in an emergency fund is more attractive.

What is the APR for a loan that charges 4.5% every 30-day payment period?

Option 1: 4.5%/30= 0.15%-day rate 0.15%* 365 days= 54.75% annual rate Option 2: 365/30= 12.167 12.167*4.5%= 54.75%

Annual percentage rate (APR) = Periodic interest rate x number of periods in year (Chapter 6)

Periodic Interest

P/E ratio (Price-to-Earnings)

Stock price per share (P) / Earnings per share (E) Range between 10 and 30

directs the brokerage firm to buy (or sell) only when the price falls below a set point Bought @$10/share, now trading @$9/share Sell stop @$8.50

Stop order

Lannie funded her Roth IRA yesterday. Unfortunately, today she had an unexpected financial emergency. When can she take out her contribution to the Roth IRA without a penalty? a. In 3 days. b. When she reaches age 59½. c. In 5 years. d. Today.

d. Today

Which of the following are forms of cash-value life insurance? a. Variable universal life insurance. b. Universal life insurance. c. Variable life insurance. d. Universal, variable, and variable universal

d. Universal, variable, and variable universal

If you withdraw money from a CD prior to maturity, what can happen? a. You can rollover the money penalty free into a money market saving account. b. You can lose a portion of your original investment. c. You can lose access to other banking products, including low interest loans and advanced savings products. d. You can be penalized through the lost interest earned.

d. You can be penalized through the lost interest earned.

The reason automobiles should not be considered an investment is because they a. help save time and effort. b. provide an essential service in providing household income. c. appreciate in value over time. d. depreciate in value over time

d. depreciate in value over time

The number-one determinant of someone's health is _____________________, followed by _____________. a. genetic disposition; medical care. b. social circumstances; environmental exposures. c. medical care; health behavior. d. health behavior; genetic disposition.

d. health behavior; genetic disposition.

Renter's insurance typically covers: a. loss of personal property. b. loss of the use of the property. c. personal liability. d. loss of personal property, loss of use of property, and personal liability.

d. loss of personal property, loss of use of property, and personal liability

One strategy to avoid prize scams from telemarketers is to: a. never pay anything to receive a free prize. b. always check your credit report at least twice a year. c. never give your credit card number out over the phone unless you initiated the phone call. d. never pay anything to receive a free prize and never give your credit card number out over the phone unless you initiated the phone call.

d. never pay anything to receive a free prize and never give your credit card number out over the phone unless you initiated the phone call.

All of the following statements are true, except: a. reliance on credit reports and credit scores often differentiates mainstream and alternative financial service providers b. a personal bank loan requires that an application be completed. c. individuals without credit reports should always first apply to mainstream lenders. d. there is a relatively small difference in the total finance charge between mainstream and alternative financial service providers.

d. there is a relatively small difference in the total finance charge between mainstream and alternative financial service providers.

If Nicole buys health insurance, she is effectively: a. accepting the risks associated with major medical expenses. b. avoiding the fact that she might become ill in the future. c. retaining the costs associated with health risks. d. transferring the risk of high health-related expenses to an insurance company.

d. transferring the risk of high health-related expenses to an insurance company.

Insurance policy owners can list contingent beneficiaries. Contingent beneficiaries: a. receive the policy death benefit when the insured dies. b. are usually family members, business partners, and employers that can show an insurable interest. c. most often are the policy owner and spouse, but not always. d. will receive the death benefit if the primary beneficiary dies before the policy owner.

d. will receive the death benefit if the primary beneficiary dies before the policy owner.

the difference between what what a house could sell for and the amount still owed on the mortgage

housing equity

tells the brokerage firm to only buy (or sell) at a specific price or better Trading @ $10/share. Buy @$9. Order: limit buy @$9

limit order

instructs the brokerage firm to buy (or sell) at the current ask or bid value

market order

What are the advantages to student loans?

-No credit check -Lower interest rate -Flexible loan repayment (more flexible repayment options compared to private student loans) -Subsidized -Unsubsidized